In the post-COVID era, student loan debt collection is dominating headlines in the U.S. According to the U.S. Census Bureau, nearly 23 million student loans have accumulated. With student loans gaining temporary relief, the focus will likely shift to repaying these debts. Debt collectors must understand how to engage with students on limited budgets through various repayment options.

As students rapidly embrace technology, debt collection agencies must increase their effectiveness in seamlessly collecting student debt. Traditional communication channels are declining, while digital channels like self-serve portals, phone, live chat, email, and text messaging are rising. Let’s explore how omnichannel outreach makes student loan debt collection easier.

The State of Student Loans

The financial situation of students has been greatly affected by the COVID-19 pandemic and rising tuition fees, leading to an all-time high in student debt, particularly in the United States. However, this issue is broader than the US; students worldwide face expensive higher education. To illustrate:

• Over half of American students incur debt to pay for college, with the average debt in 2020 totaling $37,500.
• In 2020, U.S. student loan debt rose by 8.3%.
• In the UK, total student loan debt exceeded 135.62 billion British pounds in 2020.
• In Germany, COVID-19 led to a spike of 641.6 million euros in student loan applications.

Recent graduates are still looking for work following the COVID-19 economic crisis, making it difficult to pay off their debts. Collection teams must change their approach to prevent student debts from becoming non-performing loans (NPLs).

A Brief History of Student Debt in the US

Student loan debt isn’t a new issue. Almost 181 years ago, the first student loan was issued to Harvard students. In 1965, the Higher Education Act introduced “Educational Opportunity Grants” and the Guaranteed Student Loan Program, later known as the Federal Family Education Loan Program (FFELP). The 2008 Great Recession forced many banks to back out of the FFELP. Today, graduates face increasing debt and challenges in securing decent-paying jobs. Inflation is expected to surge, making loan repayments even harder.

Debt collection agencies must simplify student repayment by offering flexible installment plans and self-service options.

Omnichannel Communications for Debt Collection

Using an omnichannel approach means more than offering multiple channels. It connects all touchpoints, providing a consistent and unified customer experience. This improves control over customer interactions and simplifies data collection for performance improvement through analytics.

Effective Strategies for Collecting Student Loans

Leverage omnichannel communication: Use various digital channels to reach customers who are behind on payments. McKinsey research shows that prioritizing digital communication can reduce non-performing loans by 20-25%, resulting in five times higher customer engagement.

“Prioritizing digital communication in collections strategies can reduce non-performing loans by 20-25% and result in 5 times higher customer engagement.”

Tailor messaging: Adapt your messaging to each past-due consumer using artificial intelligence (AI). The multi-armed bandit (MAB) method driven by AI sends the optimal message at the correct time, prioritizing templates with the highest response rates.

“The multi-armed bandit (MAB) method driven by AI lets you send out the optimal message at the correct time.”

Embrace self-service: Today’s customers prefer to solve their problems. Offering self-service options allows past-due customers to manage their debt repayment, preventing reactance and increasing the likelihood of repayment.

“Past-due customers are significantly more likely to pay back what they owe if given control of the process.”

Adapt Your Debt Collection Approach

Due to economic instability and rising inflation, paying off student debt has become challenging for today’s graduates. By adopting modern methods, you can prevent student debt from becoming NPLs.

Using omnichannel communication strategies lets you connect with consumers on their preferred channels at the right time. Personalize your messaging to each customer and offer self-service channels to give past-due customers more control over the process.

Fusion CX provides these capabilities and more. Contact us today to learn how we can help.